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E-News from KPMG's EU Tax Centre

E-News from KPMG's EU Tax Centre

Related content

KPMG’s EU Tax Centre helps you understand the complexities of EU tax law and how this can impact your business, enabling you to better predict how rules will develop and how to leverage opportunities and minimize risks arising from EU tax law.

E-News provides you with EU tax news that is current and relevant to your business. KPMG's EU Tax Centre compiles a regular update of EU tax developments that can have both a domestic and a cross-border impact. CJEU cases can have implications for your country.

Latest CJEU, EFTA and ECHR

Advocate General’s Opinion in the Picart v Ministre des Finances et des Comptes publics case on the right of establishment of a self-employed person under the EU agreement with Switzerland on the free movement of persons

On July 26, 2017, Advocate General (“AG”) Mengozzi of the CJEU issued his opinion in the Picart v Ministre des Finances et des Comptes publics case (C-355/16) concerning the scope of the terms of the Agreement between the European Community and the Swiss Confederation on the free movement of persons (AFMP), on the right of establishment and the principle of non-discrimination and whether these principles extend to a fiscal measure such as exit tax. The measure in question entailed the taxing of unrealized gains ‘on leaving’ the national territory. France imposed this ‘exit tax’ on the taxpayer (a French resident) when he transferred his tax residence to Switzerland in order to pursue an economic activity there, which consisted of managing his various direct or indirect shareholdings in a number of companies he controlled.

The question referred to the Court was whether the right of establishment of a self-employed person, as defined in the AFMP, may be considered as equivalent to the freedom of establishment guaranteed by Article 49 TFEU.

According to the AG, the AFMP provisions on the right of establishment do not refer to the management of undertakings, whereas the TFEU refers to this alongside the activities of a self-employed person. Furthermore, the AFMP only prohibits discrimination on grounds of nationality (i.e. the taxing state discriminates against foreign nationals), unlike the TFEU which extends to restrictions on the freedom of establishment of nationals of the taxing state.

The AG concluded that the right of establishment of a self-employed person, as laid down in provisions of the AFMP must be interpreted as meaning that it extends only to a natural person wishing to pursue, or pursuing, a self-employed activity on the territory of a Contracting Party other than that of which he is a national, and in respect of which he must be treated in the same way as a national of that State, i.e., any overt or covert discriminatory measure on grounds of nationality must be prohibited. On the basis of the information provided by the referring court, the plaintiff in the main proceedings does not appear to fall within the scope of those terms of the agreement.

Consequently, the right of establishment of a self-employed person, as defined in the AFMP, may not be considered as equivalent to the freedom of establishment guaranteed by Article 49 TFEU.

Infringement procedures & referrals to CJEU

EU Commission calls on Bulgaria, Cyprus and Portugal to transpose new transparency rules for the exchange of tax rulings

The Commission has sent reasoned opinions to Bulgaria, Cyprus and Portugal, as they have failed to transpose the new measures on the automatic exchange of tax rulings between EU tax authorities (Council Directive (EU) 2015/2376) into their national legislation. Indeed, Member States were supposed to transpose these measures by December 31, 2016. In the absence of a satisfactory reply within two months, the Commission may decide to refer the case to the CJEU.

France - European Commission issues reasoned opinion on foreign-source income

On July 13, 2017, the European Commission sent a reasoned opinion to France concerning the unfavorable treatment of taxpayers receiving income from foreign sources. In particular, the Commission asked France to amend certain provisions concerning the way in which it calculates personal income tax. Under current French tax law, taxpayers resident in France and earning part of their income in another Member State of the EEA cannot benefit from: - the same personal and family tax advantages as applied to income earned in France; - any refunds or deferrals of tax credits for income from foreign sources, if the individual is in a loss position.

In this context, France is in breach of its obligations under the free movement of workers, the right of establishment and the free movement of capital provided for by the TFEU and the EEA Agreement. In the absence of action from the French authorities within two months, the Commission may decide to refer the case to the CJEU.

The case referred to the CJEU by the German Federal Tax Court (BFH) concerns a German corporation holding 30% of the shares in a corporation based in Switzerland. The Swiss company received income from factoring activities that was deemed by the German tax authorities to be passive capital investment income of a CFC subject to a low foreign tax rate. The profits were therefore attributed proportionally to the German shareholder and included in its taxable income. The BFH raised the question whether Article 63 of the TFEU might apply in this case since the free movement of capital also includes the movement of capital to and from third countries. As the scope of the German CFC rules have been subsequently expanded and technically amended since 1993, the BFH also doubts the applicability of the standstill clause according to Article 64 of the TFEU.

The BFH therefore requested a preliminary ruling from the CJEU on:

(i) whether a restriction on the free movement of capital to and from third countries involving direct investments is not affected by Article 63 TFEU due to the standstill clause (Article 64 TFEU), even if the national law was extended after December 31, 1993 to also cover investment holdings in foreign companies below the shareholding threshold of 10%.

(ii) whether a restriction on the free movement of capital to or from third countries involving direct investments is not affected by Article 63 TFEU due to the standstill clause (Article 64 TFEU), even if national law substantially corresponding to the restriction was substantially amended after December 31, 1993 for a short time by legislation which formally entered into force, but was in practice never applied as it was replaced by the legislation currently in force before it could be applied to a specific case for the first time.

(iii) whether - if the standstill clause is not applicable in the two cases described above – the German CFC regime which provides that a taxable person resident in Germany, holding at least 1% of the shares in a company established in another State (Switzerland), which includes positive income earned by that company derived from capital investments pro rata, in the amount of the shareholding, where such income is taxed at a lower rate than 25%, is in conflict with the concept of the free movement of capital according to Article 63 TFEU.

State Aid

Commission finds Poland’s tax on the retail sector in breach of EU rules

The European Commission has concluded that a Polish tax on the retail sector is in breach of EU state aid rules and that the progressive tax rates based on turnover give an advantage to companies with low turnover.

The Commission does not challenge Poland’s right to determine its own tax regimes or tax objectives. However, the tax system must comply with State aid rules, and cannot unduly favor certain companies over others.

The Commission concluded that the progressive tax rates structure involves an unfair economic advantage for companies with a low turnover. It is quite common for smaller companies to pay less tax than larger companies, but this should be still in the same proportion to their turnover.

Poland failed to show that the progressivity of the retail tax was justified by the objective of using this tax to raise revenues, or that companies subject to the higher rates would be better able pay them. The Commission requires Poland to remove the unjustified discrimination between companies as regards the retail tax and re-establish equal treatment in the market.

Ireland - exemption of Irish airlines from air travel tax on passenger transfer and transit does not constitute illegal State aid

On July 14, 2017, the European Commission concluded that the exemption from air travel tax granted by Ireland on the transfer and transit of passengers is not in breach of EU State aid rules, since the exemption does not favor specific airlines. In addition, the Commission stated that the exemption is in line with the rationale behind Irish tax, which is to tax each passenger flying from an airport located in Ireland and it does not in itself induce undue discrimination among airlines. This decision is further to the CJEU decision in Ryanair v. Commission (Case T-512/11) in which the Court cancelled a 2011 decision from the Commission that the non-application of Irish tax to passenger transit and transfer did not constitute State aid, given that the Commission should have initiated the formal investigation procedure in order to gather relevant information.

On July 19, 2017, European Commission Decision 2017/1283 of August 30, 2016, in which the EC concluded that Ireland had granted illegal fiscal State aid to Apple worth up to EUR 13 billion between 2003 and 2014, was published in the Official Journal of the European Union.

On July 22, 2017, a statement was released in which the Irish government declared its commitment to recover the amount stipulated in the European Commission’s Apple State aid decision. It indicated that the amount will be paid into an escrow fund and released when the CJEU rules on said decision. However, the annulment request sent by the Irish government against the European Commission’s decision is still pending.

EU Institutions

EUROPEAN COUNCIL

New innovation box regime approved by ECOFIN Code of Conduct Group and OECD forum

On June 28, 2017, the Dutch Ministry of Finance informed the Dutch parliament about developments concerning the amended innovation box regime. The 2017 Tax Plan included amendments to the present Dutch innovation box regime, one of which was the introduction of the "modified nexus approach" proposed by the BEPS project. The new regime has been approved by the European Code of Conduct Group which concluded that this new regime does not constitute harmful tax competition.

The OECD forum, which since July 2016 has investigated 125 preferential tax regimes in various countries, concluded that the innovation box regimes of 11 countries —including the Netherlands — did not produce any harmful tax competition. The OECD forum approval relates to a version of the innovation box that (for the most part) was introduced as of January 1, 2017 and was included in the 2017 Tax Plan.

Following the ECOFIN approval, the list of qualifying assets has been expanded to include biological plant protection products. This measure will enter into force on July 1, 2017 and have retroactive effect to January 1, 2017.

The European Commission has published its Taxation Trends report (PDF 3.13 MB), which provides an analysis of main tax trends across the EU and for individual countries. The report, published annually, offers a breakdown of comparative tax levels in the EU and of tax raised from consumption, labor and capital revenues. It also contains data on energy, environmental and property taxation and on the top personal and corporate income tax rates.

According to the report, revenues from consumption taxes were up for the EU 28 as a percentage of GDP in 2015. However, the proportion of consumption taxes to total tax revenue increased only slightly to 28.7%, compared to 28.5% in 2014. The report also shows that the average top corporate income tax rate fell from 22.5% in 2016 to 21.9% in 2017.

EUROPEAN PARLIAMENT

ECON hearing with Estonian Minister of Finance, discussions on taxing the digital economy

On July 11, 2017, the ECON Committee held a public hearing with the Estonian Minister of Finance, Toomas Tõniste. During the hearing, the Minister reaffirmed that taxation of the digital economy remains a priority for the Presidency. In this respect, the ‘virtual’ place of activity should be given higher priority than the physical one. The Minister suggested that this issue could be included in the CCCTB framework.

PANA hearing with EU Finance Ministers

On July 11, 2017, the PANA Committee welcomed the Finance Ministers of Germany, Ireland, Italy and the Netherlands to discuss the follow-up of the Panama Papers in their respective countries and to hear their views on tax evasion, tax avoidance and money laundering as well on the initiatives that are being undertaken by the Commission in the field of taxation and anti-money laundering.

MEPs and the Finance Ministers also debated the reform of the Code of Conduct Group (Business Taxation).

For more information, please refer to replies by Germany, Ireland, Italy, the Netherlands and Estonia to written questions regarding the numerous legislative and other measures undertaken by their governments against tax evasion, tax avoidance and money laundering, extracts from the debate, and press release.

On July 18, 2017, the ECON Committee released the draft report prepared by Alain Lamassoure on the proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) and the draft report prepared by Paul Tang on the proposal for a Council Directive on a Common Corporate Tax Base (CCTB). The recommendations in the reports include the following amendments to the Commission proposals:

- The two Directives must be implemented by January 1, 2020, instead of January 1, 2019; - A lower threshold of EUR 40 million to replace the threshold of EUR 750 million for the consolidated turnover of the MNEs covered by the CCCTB/CCTB Directives; - The introduction of the principle of a minimum rate; - To the extent that the CCCTB Directive would not be adopted by the Council, a procedure for a Council decision to enhance cooperation on this issue should be initiated by the Member States using the euro and there should be a mechanism for future adjustments of the CCCTB regime; - The addition of a clause introducing temporary compensation for Member States for which the introduction of the CCCTB will result in a loss of tax revenue. The compensation fund should be financed with the tax surplus from Member States that see their tax revenue increase as a result of the CCCTB; - The factor “collection and use of personal data of online platforms and services users (DATA)” should be added to the formula apportionment for the consolidated tax base. The “assets” factor should include all tangible and intangible assets (not only fixed assets); - The CCCTB Directive should also apply to companies in third countries in respect of digital activities that are directed towards consumers or businesses in a Member State or that principally receive their revenue from an activity in a Member State. A company with a digital presence collecting and exploiting the personal data of users of online platforms and services, and which is located for commercial purposes in a Member State should be regarded as a resident of that Member State; - The inclusion of a five-year loss carry-forward period.

Commission answer - Tax practices of multinational corporations

On June 28, 2017, the Commission replied to a question about a study which claimed that the USA is losing USD 135 billion of tax revenue every year due to funds hidden in tax havens, including funds from the country’s 50 largest companies. These multinational firms use offshore arrangements and several Member States appear in the list of the world’s top 10 tax havens. In this context, an MEP asked whether the Commission will investigate companies operating in the EU, how it intends to safeguard the interests of European taxpayers against tax evasion, how it is progressing with its proposal on a CCCTB and what reforms it intends to propose for both the short and the long-term?

Pierre Moscovici, on behalf of the European Commission, replied that the tax investigation of individual companies is a matter of for the relevant Member States. For some time now, the Commission has focused on harmful tax regimes, tax loopholes, secret tax rulings and mismatches between different tax systems to combat tax evasion and avoidance through concrete actions or initiatives such as the ATAD and the ATAD 2 on hybrid mismatches, as well as the common EU list of non-cooperative jurisdictions and the CCCTB. The Commission promised to obtain the support of Member States for the new CCCTB proposals so that these could be adopted as soon as possible.

The Commission has also been investigating tax rulings in Luxembourg, the Netherlands, Ireland and Belgium to establish whether these constitute illegal State aid. It concluded that in several cases these tax rulings can be considered as providing state aid to companies.

On July 7, 2017, the Commission replied to a question about US legislation on trade secrets and the fact that the US had stricter rules on the confidentiality of information than the EU. In this context, an MEP asked if a US subsidiary operates in the EU and its parent company prohibits it from disclosing certain information under US law, through what legal channels can it be made to contravene the law in its country of origin and report the information, and if EU subsidiaries of non-EU companies have to comply with EU rules “to the best of their knowledge and ability” as indicated in the proposal for the Directive, how will the Commission ensure that subsidiaries of EU companies will not be de facto subject to stricter requirements?

Pierre Moscovici, on behalf of the European Commission, replied that in April 2016 the Commission had adopted a proposal for a directive amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches aiming to cover the operations of the largest multinational companies including both EU companies and non-EU companies operating in the EU (CbCR to tax authorities).

The potential limitations in the availability of information from non-EU groups had been borne in mind by including both-EU and non-EU multinational groups in the scope of the proposal. As the report would have to be drawn up by the ultimate parent company, the responsibility of EU subsidiaries or branches of non-EU groups would be limited to ensure that the report was prepared, published and made accessible according to the reporting requirement “to the best of their knowledge and ability”.

The enforcement of the directive falls within the competence of the national judiciary systems and besides the legal aspect, the company’s reputation might be tarnished should they seek to withhold information. The proposal puts EU and non-EU companies on the same level by implementing the same reporting requirements, thus creating fairer competition between multinational companies and those operating only in one market.

On July 5, 2017, the Commission replied to a question about the decision to delay the investigation into illegal State aid in Gibraltar until the outcome of the appeal filed by the Gibraltarian authorities with the CJEU in which they oppose this investigation being extended. The MP asked whether Gibraltar is still issuing tax rulings similar to those being investigated; whether Gibraltar has introduced any measures as a result of the Commission’s decision to extend the procedure and whether it has changed its tax practices; what steps is the EU taking to stop fraudsters using Gibraltar to hide their identity and, in a post-Brexit scenario, whether Gibraltar should be included in the EU list of countries and territories that are non-cooperative tax jurisdictions?

Ms. Vestager, on behalf of the European Commission, replied that in October 2013 the Commission launched formal investigations into the corporate tax exemption for passive interest and royalties in Gibraltar. The scope of this investigation was extended to the tax ruling practice in Gibraltar. Although the decision to broaden the scope of the investigation is being challenged by Gibraltar before the CJEU, the appeal does not suspend the Commission’s investigation. During the course of the investigation, Gibraltar has already abolished the tax exemptions for passive interest and royalties and, in 2015, Gibraltar also increased its requirements for tax returns. The Commission is not in a position to comment on whether any particular jurisdiction has been selected for inclusion on an EU list of non-cooperative jurisdictions for tax purposes, since the Council is in charge of the EU screening process and is responsible for the release of this information.

On July 20, 2017, the Commission replied to a question about the administration of Madeira by a public/private consortium, the Madeira Development Company. The MEP asked if this public-private partnership is lawful, when is it a known fact that sound and proper supervision of the Madeira free trade zone has never been a priority for those involved since they receive registration fees from it, and this type of tax regime permits tax evasion if it is not properly supervised.

Ms. Vestager, on behalf of the European Commission, replied that, in principle, it would not be unlawful under EC law to award a concession to a public-private partnership to administer a free trade zone. However, such concession contracts must be awarded in compliance with EU public procurement rules. The Commission is presently investigating whether the awarding of the concession contract to this public-private partnership complied with EU rules.

On July 5, 2017, questions for written answer were raised with the Commission about the 4th Anti-Money Laundering Directive which took effect in June 2017. The MEP asked whether the Commission evaluated the risk of money laundering and the financing of terrorism in industries and in relation to a number of financial products; whether the provisions of the 4th Anti-Money Laundering Directive have been introduced by all Member States and if not, what progress has been made on this, and whether the Commission will permanently monitor the changing risk of money laundering and the financing of terrorism?

Parliamentary questions - The search for a more favorable fiscal framework and the exercise of fundamental rights and freedoms

On July 4, 2017, questions for written answer were raised with the Commission about CJEU case law that regards the search for a more favorable tax regime as not constituting abuse. Moreover, the reduction in tax revenues and the effort to preserve the tax base in a State is not considered as an overriding reason in the public interest for justifying a restriction on the exercise of fundamental freedoms. The MEP asked what the Commission’s position was on the aggressive searching for a more favorable tax regime, which may impact the national tax base and unfair competition among Member States by using policies for tax purposes and the exercise of fundamental freedoms and rights with the minimum possible restrictions?

On June 15, 2017, a question for written answer was raised with the Commission about the recent discussions in the Council’s Code of Conduct Group confirming that many of the criteria proposed by the Commission to define tax havens at the European level have been cancelled or completely rewritten. Consequently, only information concerning the Member States will have to be disclosed. However, mandatory public CbCR will only be able to combat profit shifting and tax avoidance effectively if it is made a global requirement. In June 2017, the ECON committee adopted a report calling for reporting for all tax jurisdictions. The MEP asked whether the Commission will support these improvements in order to make mandatory public CbCR fully effective.

On June 30, 2017, questions for written answer were raised with the Commission about its proposal on CbCR which intends to limit the reporting requirements to companies with a net turnover of more than EUR 750 million per annum. The MEP asked what percentage of corporations established in the EU: - will this proposal affect when implemented; and - would fall under the reporting requirements if the EU definition of large companies (i.e. those with a net turnover of more than EUR 40 million per annum) was used instead?

On June 30, 2017, the draft inquiry report and the draft recommendations of the PANA Committee were published and circulated to Members. The draft report presents the Committee’s findings on discrepancies between the practices revealed in the Panama Papers and EU law, notably the Directives on Anti-money Laundering and on Administrative cooperation in the field of taxation. It also includes a factual section explaining how the evidence taken into account to reach these findings and conclusions was collected and analyzed, as well as identifying infringements of EU law and cases of maladministration. The draft recommendations address how to improve the EU framework regarding Anti-money laundering and administrative cooperation in the area of taxation. Both reports are opened for amendment in the Committee. The deadline is September 5, 2017 at 12:00 noon. The draft recommendations will then be open for amendment in the plenary session.

OECD

Update on international tax transparency

During a global forum on tax transparency held on June 28, 2017, the OECD reported that both developing and developed countries deal with challenges such as global tax transparency, banking secrecy, and tax evasion. Part of the international efforts on tax transparency include actions under the BEPS project. As noted in the OECD release, some jurisdictions have not achieved a satisfactory level of implementation of the agreed international standards. A list of non-cooperative jurisdictions was prepared for a meeting of the leaders of the G20 countries, which took place in July 2017. To avoid being included on the list, jurisdictions need to meet at least two of the three benchmarks, i.e. the exchange of information on request (EOIR) standard; the Automatic Exchange of Information (AEOI) standard and Participation in the Multilateral Convention on Mutual Administrative Assistance on Tax Matters, or a sufficiently broad exchange network permitting both EOIR and AEOI.

The OECD Transfer Pricing Guidelines provide guidance on the application of the arm’s length principle. The 2017 edition mainly reflects a consolidation of the changes resulting from the BEPS Project. It incorporates the following revisions of the 2010 edition into a single publication:

• The substantial revisions introduced by the 2015 BEPS Reports on Actions 8-10 Aligning Transfer Pricing Outcomes with Value Creation and Action 13 Transfer Pricing Documentation and CbCR. • The revisions to Chapter IX to conform the guidance on business restructurings to the revisions introduced by the 2015 BEPS Reports on Actions 8-10 and 13. • The revised guidance on safe harbors in Chapter IV; • Consistency changes that were needed in the rest of the OECD Transfer Pricing Guidelines to produce this consolidated version of the Guidelines.

The OECD Committee on Fiscal Affairs has published the draft (PDF 2.07 MB) of the 2017 update to the OECD Model Tax Convention. The update has not yet been approved by the Committee on Fiscal Affairs or by the OECD Council, even though significant parts of the 2017 update have already been approved as part of the BEPS Project. It will be submitted for approval by the Committee later in 2017.

On July 18, 2017, the OECD published additional guidance on the implementation of CbC reporting developed under Action 13 of the BEPS project. The issues addressed in the additional guidance are: – how to treat an entity owned and/or operated by two or more unrelated MNE groups; – whether consolidated data for each jurisdiction is to be reported in the CbC report.

Local Law and Regulations

Andorra

Draft bill implementing measures against BEPS approved by government

On July 5, 2017, the government approved the draft bill amending the Corporate Tax Act in order to implement measures related to the BEPS project. The main amendments concern the implementation of CbCR (BEPS Action 13) and a patent box (OECD Action 5 Final Report 2015 i.e. the nexus approach) as well as the phasing out of the current 80% reduction of the tax base for qualifying income from the international exploitation of patents and for income from “international trading” and “intragroup financial management and investment companies” (resulting in an effective tax rate of 2% on such income). The reduction is decreased by 25% each year so that it will be completely phased out by January 1, 2021.

In addition, the special regime for the holding of non-resident subsidiaries has been amended to cover domestic subsidiaries and to implement the following requirements: any foreign subsidiaries held must be subject to a minimum CIT rate that is at least 40% of CIT, a minimum percentage of holding of 5% applies, and the foreign subsidiary/subsidiaries must have been held for at least 1 year. A transitional regime has been put in place under which foreign holdings are tax-exempt for dividends or capital gains derived from foreign subsidiaries until December 31, 2020, even if they do not fulfill the requirements introduced by the draft bill.

On July 6, 2017, the Belgium parliament approved the Multilateral Competent Authority Agreement on the Automatic Exchange of Country-by-Country Reports (CbC MCAA), which Belgium had signed in 2016. The ratification of the agreement is subject to final approval by the King.

Draft bill on implementation of several directives on the automatic exchange of information in tax matters submitted to parliament

On July 3, 2017, the Belgian government submitted a draft bill on the implementation of Directive 2015/2376/EU amending the Mutual Assistance Directive as regards exchange of cross-border rulings and transfer pricing arrangements and the partial implementation of Directive 2016/881/EU amending Directive 2011/16/EU as regards the exchange of Country-by-Country reports to parliament.

The amendments apply retroactively as of January 1, 2017.

Cross-border rulings and transfer pricing arrangements issued in the first semester of 2017 will be exchanged by September 30, 2017, at the latest. The first CbCRs, covering reporting periods starting on or after January 1, 2016, will be exchanged no later than 18 months after the last day of the accounting period and the subsequent reports will be exchanged within 15 months.

Rulings (valid on or after January 1, 2014) issued, renewed, or amended between January 1, 2012 and December 31, 2016 will be exchanged by December 31, 2017 at the latest. Please note that the bill concerning the automatic exchange of cross-border rulings and transfer pricing arrangements issued before April 1, 2016, does not include the threshold option of EUR 40 million turnover as provided by Directive 2015/2376/EU. The bill is also broader than the scope of the Directive since rulings which are issued after the execution of a cross-border transaction but before the tax return has been filed are also covered.

On June 14, 2017, the Cyprus Tax Department informed all financial institutions and their representatives that the reporting deadline for Common Reporting Standard purposes has been extended from June 30, 2017 to July 21, 2017.

Guidance notes on the Automatic Exchange of Financial Account Information – published

On June 20, 2017, the Cyprus Tax Department published guidance notes on the Automatic Exchange of Financial Account Information. The notes provide up-to-date guidance on key issues related to the applicable reporting regimes.

Cyprus has legislation on the automatic exchange of financial account information in place under three different regimes: the Cyprus - United States FATCA Model 1A Agreement (2014), the Common Reporting Standard developed by the OECD (CRS), and the Mutual Assistance Directive. The guidance mainly focuses on the requirements provided under the Directive and the CRS and emphasizes the differences that apply under FATCA.

The guidance is additional to the Commentaries on the CRS and the Model Competent Authority Agreement provided by the OECD, which are the first documents of reference.

Circular on the requirement for all intra-group transactions to be conducted in compliance with the arm’s length principle as detailed in Article 9 of the OECD Model Convention – published

In June 2017, the Tax Department issued Circular EE 3/2017 on the tax treatment of back-to-back intra-group financing arrangements. The Circular applies to resident companies and non-Cypriot resident companies with a Cyprus permanent establishment (PE) with financing activities involving that PE and covers financing transactions carried on between a company and its related parties, such as private loans, cash advances, bank loans and debentures.

The Circular, which applies from July 1, 2017, requires that all intra-group transactions are conducted in compliance with the arm’s length principle as contained in Article 9 of the OECD Model Convention (2014). In practice, this means that a comparability study must be provided.

In the case of a financing company engaging solely in intermediary intra-group financing activities, the arm’s length principle will be deemed to be complied with, provided that risk management requirements are met and the company receives a minimum return of 2% after-tax on assets. In practice, a company meeting all the relevant criteria should avoid preparing a transfer pricing analysis for each transaction. Deviation from the minimum return can be permitted in exceptional cases, provided this is justified by an appropriate transfer pricing study.

The issuance of tax rulings related to intra-group financing arrangements or advance pricing arrangements, as well as the use by a taxpayer of the simplified approach, is subject to the exchange of information rules provided for in the Mutual Assistance Directive.

Denmark

Establishment of a PE by foreign investors

In June 2017, the Danish Tax Board published a binding answer on the establishment of a PE in Denmark through the activities of foreign investors, in which it confirmed that foreign limited partners investing in a Danish company will not constitute a PE solely as a result of their investing activities.

Finland

Guidance on allocation of profits to PE published

In June 2017, the Tax Administration published guidance on the allocation of profits to a PE. The guidance covers profit calculation, tax treaties, the determination of a PE as a separate entity, transfer pricing methods and practical examples.

In June 2017, the Finnish Ministry of Finance launched a public consultation on a draft bill on access to information about nominee registered shares.

The draft bill provides for the introduction of a 50% WHT on unidentified taxpayers and a 35% WHT for taxpayers registered with limited liability that did not provide sufficient beneficial ownership information; obliges companies paying the dividends to check the place of residence of the recipient to determine if a tax treaty applies; tax liability of the dividend payer for improper withheld tax; and provides for a refund of excess WHT.

France

CbC reporting – list of cooperating jurisdictions published

In July 2017, a list of jurisdictions that have CbCR requirements similar to the French legislation and that have concluded an agreement with France on the automatic exchange of CbC reports was published. French companies held or controlled by a company resident in these jurisdictions are not subject to the CbC reporting obligation in France.

The bill amending various laws, including the fiscal procedural law, in order to transpose the 4th EU Anti-Money Laundering Directive and the European Money Transfer Regulation into national legislation was published on June 24, 2017.

Final list of jurisdictions for automatic exchange of information published

On July 12, 2017, the German Ministry of Finance published the final list of jurisdictions with which Germany will automatically exchange financial account information in tax matters as of September 30, 2017. The list is available here.

Ministry of Finance issues guidance on Country-by-Country reports

On July 11, 2017, the German Ministry of Finance issued official guidance on the requirements for CbCR. The reports must be prepared for the first time for financial years starting after December 31, 2015. The reports may be submitted to the Federal Tax Office in the English language. In respect of the content of the reports, the guidance makes reference to the OECD’s XML schema and the OECD User Guide.

Amended transfer pricing documentation ordinance gazetted

The ordinance on transfer pricing documentation implementing the changes brought by the bill on the implementation of amendments to the EU Mutual Assistance Directive and other measures against base erosion and profit shifting, in particular the introduction of CbCR, was published on July 19, 2017.

Ireland

Budget 2018 – Summer Economic Statement released

In July 2017, the Minister for Finance released the Summer Economic Statement (SES) for the 2018 Budget. Regarding tax measures, the SES highlights Ireland's commitment to the BEPS Project as well as its commitment to providing an attractive corporate tax regime. The significance of the 12.5% CIT rate and the Knowledge Development Box are considered as key elements of the corporate tax regime.

ItalyPatent box regime and other corporate income tax measures

A law decree removes trademarks from the list of qualifying intangibles under the patent box regime. The limits on the patent box regime apply to taxpayers that elect to apply the patent box regime after 2016. “Grandfathered” measures apply for elections with respect to trademarks in tax years in progress as of December 31, 2016.

Increase in percentage of taxable capital gains to be included in taxable income

A decree establishes a new percentage for the portion of capital gains and losses that non-resident taxpayers realize from the transfer of “qualifying” shares in Italian companies, and which is to be included in the taxable income of the seller for the purposes of Italian CIT.

On June 27, 2017, the Italian tax authorities issued a tax ruling that makes it easier for foreign investment funds to demonstrate that they qualify for a WHT exemption. The ruling clarifies that in cases when the supervisory authorities of a foreign state do not issue a specific attestation, the “subject to supervision” requirement is satisfied if supervision can be inferred from public sources.

Launch of a consultation on implementation of EU Anti-Tax Avoidance Directive

On July 10, 2017 the Minister of Finance launched an internet consultation on the implementation of the Anti-Tax Avoidance Directive (ATAD). The consultation concerns the introduction of an interest deduction limitation rule and changes to the participation exemption which must take effect on January 1, 2019.

On June 17, 2017, the resolution removing Lichtenstein from the list of non-cooperative tax jurisdictions took effect. The resolution was adopted by the Ministry of Finance following a public consultation. Non-cooperative jurisdictions are jurisdictions that do not exchange tax information.

Publication of details on Country-by-Country reporting rules

On June 16, 2017, the ordinance on Country-by-Country reporting (CbCR) was published. It provides more clarification on CbCR, notably for ultimate parent entities and constituent group entities that are subject to CbC in Slovenia. According to the ordinance, the report must be filed within three months of the end of the tax year. The ordinance took effect on June 29, 2017. Sweden

On June 19, 2017, the Swedish Tax Agency issued guidelines on the reporting obligation for the automatic exchange of advance tax rulings in cross-border situations and advance pricing agreements. It provides an overview of relevant EU legislation, information that the Swedish Tax Agency will submit to other Member States and the European Commission and a schedule for the automatic exchange of information.

Publication of guidelines on receipt and storage of supporting CRS documentation

On July 19, 2017, the Tax Agency issued guidelines on the receipt and storage of supporting common reporting standard (CRS) documentation required under Directive 2014/107 amending the Mutual Assistance Directive (2011/16). Different requirements apply to financial institutions.

Switzerland

KPMG approach confirmed on refund for French UCITS SICAV

On May 31, 2017, the Swiss tax authorities reimbursed the withholding tax on dividends paid by a Swiss entity to a French resident UCITS SICAV. The KPMG approach on the determination of the ultimate beneficial owners of the dividends and their eligibility to the benefits of the French-Swiss Double Tax Treaty is hence confirmed.

On June 26, 2017, HMRC issued guidance on money laundering supervision for money service businesses, estate agency businesses, accountancy service providers, trusts or company service providers and high value dealers. It reflects legislative changes effective from June 26, 2017. Publication of report on simplification of the corporate tax computation

On July 3, 2017, the Office Tax Simplification issued a report entitled Simplification of the Corporation Tax Computation. The report recommends notably simpler tax for smaller companies, aligning the tax rules more closely with accounting rules where appropriate and simplifying tax relief for capital investment.

Local Courts

France

Preliminary ruling from the Constitutional Court requested by the Administrative Supreme Court on the 3% contribution dividend

On July 7, 2017, the Administrative Supreme Court (Conseil d’Etat) requested a preliminary ruling from the Constitutional Court (Conseil constitutionnel) following up the CJEU decision in the AFEP and others case regarding the compatibility with the Parent-Subsidiary Directive of the 3% contribution on dividends provided for in Article 235 ter ZCA of the CGI.

According to the Court, the CJEU decision results in reverse discrimination, which might be contrary to the principle of equality since the redistribution of dividends received by a French company from a subsidiary located within the EU may not be subject to the 3% contribution, whereas the same redistribution may be taxed if the subsidiary is located in France or in a third country.

A decision will be rendered by the Constitutional Court within 3 months.

On July 12, 2017, an administrative court in Paris rendered five decisions with respect to online advertising services, in which it ruled that the Irish entity did not have a permanent establishment in France for the purposes of different taxes, such as CIT, VAT, business tax (taxe professionnelle) and added-value contribution (CVAE).

The Irish company, a subsidiary of a US firm, operates an online advertising service related to the search engine. Under an agreement between the Irish company and the French subsidiary, the French subsidiary of the US firm provides commercial assistance and advice to French clients of the Irish company that have subscribed to the online advertising service.

The French Tax Authority argued that the Irish company had a PE in France through its activities related to the online advertising services invoiced to French clients.

The French Court ruled that, as regards CIT and WHT, there was no PE in France according to the DTT between France and Ireland. Indeed, two conditions must be met for there to be a PE:

- the French subsidiary must be dependent on the Irish company and; - the French subsidiary must have the power to legally commit the Irish company.

The Court concluded that the French subsidiary could not legally commit the Irish company since the French subsidiary’s employees could not choose, by themselves, to publish online the advertisements ordered by French clients (any order had to be validated by the Irish company).

The Court concluded that there was no PE for VAT purposes since the Irish company did not have the staff or technical resources in France to perform the services. As regards CVAE, the Irish company is not liable for this tax since the company does not own intangible assets in France.

The Court annulled all the tax reassessments. The French tax administration announced that it will appeal the decisions.

On May 30, 2017, the Federal Supreme Court rendered its decision (No. 2C_140/2016) on the tax treatment of foreign quasi-residents. The case concerned a French resident that worked in Switzerland and was subject to wage withholding taxes on her employment income. The taxpayer filed for re-assessments of taxes due claiming certain deductions, without however providing French tax returns as requested by the Swiss tax authorities.

The Court ruled that taxpayers who have the citizenship of an EU Member State and who earn more than 90% of their revenue in Switzerland are considered to be quasi-residents and must be treated the same as Swiss residents. However, the Court noted that a taxpayer is obliged to provide the tax administration with all the necessary information for the assessment of the wage withholding tax. In this case the taxpayer failed to provide the documentation requested by the Swiss tax authority.

On May 23, 2017, the Federal Supreme Court rendered a decision (No. 2C_1078/2015) on the reimbursement procedure for the anticipatory tax in cross-border situations. The case concerned a claim made by a Spanish company in respect of dividends received from a Swiss subsidiary and was based on the EU-Switzerland Savings Tax Agreement and the Spain-Switzerland Tax Treaty.

The Federal Tax Administration denied the Spanish company’s request as did the Federal Administrative Court upon appeal. They based their decision on Article 32(1) of the Federal Withholding Tax Law, under which a claim for the reimbursement of anticipatory tax on capital gains must be filed within three years of the year in which the dividends were distributed. In this case, the Spanish company failed to file the claim on time. The Supreme Court ruled that a reimbursement procedure based on domestic law does not violate the Saving Agreement and that the Spanish company failed to file the claim on time.